Actuary is one of those insurance words that makes people want to run the other way.  Although you don't need to know it in order to compare term life insurance policies, it's not a bad idea to know how life insurance companies manage their business using actuarial data.  Let's dig a little deeper into actuaries and find out how to use this information to make better decisions when researching our options.

Being in the life insurance business, we typically have a pre-conception of actuaries (the people that use actuarial data) sitting in rooms with reams and reams of data, charts, slide-rulers and some thick black glasses.  This may have been true in the past but actuary is all about information and statistics and that passed into the realm of computers years ago.  An actuary's job is extremely difficult...to predict the future...in the case of life insurance, the probability of a person or percentage of people passing away.  The margin of error is extremely small as term life insurance has become so competitive.  How does an actuary accomplish this? 

Actuaries must first start with the past.  It's not a perfect roadmap for the future but it's a good start.  This "actuarial" data is the first step in understanding the past.  What should the life insurance company look at?  Since life insurance deals with the financial impact of death, historical data regarding death is the most critical.  The key is to narrow this information down to what factors actually affect the probability of death.  Age obviously is the most critical factor.  In year 2005, the probability of death at age 25-34 in California is 84 per 100,000 people.  This increases (per 100K) to 161 for age 35-44.  That's roughly double the increase in probability of passing away.  This doubling continues for the most part with each 10 year band of increasing life.  So obviously, age is significant.  The rate at age 75-84 is 4800 per 100,000.  This information is based on 2005 data for California.  What's missing from this actuarial data?  One critical distinctions that shows in the probability of death and resultantly, your life insurance premium is...Gender.  There is a fairly significant difference in the probability of death between men and women with men carrying the short end of the stick.  So gender is now a refinement of the actuarial data that drives rates you will find in your quote. 

This baseline information is further narrowed as much as possible.  The better visibility that an actuary has into the data, the more narrow and lower the rates can be.  The rates can be further narrowed for area (there's a big discrepancy in mortality rates based on region), occupation, height/weight, cholesterol, medical status, blood pressure, family medical history, and more.  Needless to say, all these attributes and more are reflected in either the term life insurance application or the paramedical exam.  The life company that can best gather and read this actuarial information has an advantage when pricing their plans.